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Cyberonics Investor Analyst Meeting

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Cyberonics Investor Analyst Meeting Powered By Docstoc
					        Cyberonics Investor &
          Analyst Meeting


December 4, 2009
The Westin Copley Place




                                MDSym10-11-1000-US
Boston, Massachusetts
Dan Moore
President & Chief Executive Officer




                                      MDSym10-11-1000-US
 Safe Harbor Statement
This presentation includes forward-looking statements.

Forward-looking statements may be identified by the use of forward-looking terminology, including “may,” “believe,” “will,” “expect,”
“anticipate,” “estimate,” “plan,” “intend,” and “forecast,” or other similar words.

Statements in this presentation are based on information presently available to us and assumptions that we believe to be reasonable.

Investors are cautioned that all such statements involve risks and uncertainties.
Forward-looking statements in this presentation include statements concerning:
   Delivering game changing technologies for improved efficacy, more treatment options, greater ease of use, and better patient management,
   including new generations of generators, leads, programmers, and wands, new stimulation algorithms and parameters, seizure detection and
   prediction through EKG and EEG sensing, closed-loop therapy, VNS Therapy efficacy predictors, higher capacity batteries, rechargeable
   batteries and new power management technology, wireless communication, reduced-size devices, RF-powered technology, leadless
   electrodes, MRI-safe leads, nerve over wrap, and electronic seizure diaries, and obtaining patent protection for the new technologies;
   Maintaining leadership in treatment and management of patients with epilepsy;
   Doubling revenues in 5 years to $320+ million in FY 2015 with a CAGR of 15% and driving adjusted EPS at a higher rate;
   Growing revenue through end-of-service generator re-implants, new patient growth in the U.S., Japan, and BRIC and other countries, with
   customer focus and new products, and price increases annually and with new product introductions; and
   Projections through FY 2015 for revenue and new patient growth in the U.S., Japan, and BRIC and other countries, and for annual ASP
   increases.

Our actual results may differ materially.

For a detailed discussion of the factors that may cause our actual results to differ, please refer to our most recent filings with the SEC, including
our Form 10-K for the fiscal year ended April 24, 2009 and our Form10-Q for the periods ended July 24, 2009 and October 23, 2009.




                                                                                                                                                3
Cyberonics




 Solutions for people affected by epilepsy.




                                              4
Goal


Enhance shareholder value by doubling
revenues within 5 years and increasing
adjusted EPS at a higher rate.




                                         5
Meeting Objectives

• Provide overview of epilepsy, current treatments, and the
  future role of medical devices

• Highlight achievements that have resulted in the significant
  turnaround of Cyberonics

• Show global market potential and discuss VNS replacement
  trends, new patient forecasts, development priorities and
  timelines

• Make the case for sustaining growth


                                                                 6
Progress

• Returned the company to profitability and positive cash flow
• Established consistent and growing operating profitability
• Restored growth to our core epilepsy business
• Strongly improved our gross profit margins
• Restructured the organization, both domestically and
  internationally
• Stabilized the balance sheet and reduced debt




                                                                 7
Progress
• Launched several new products, including the Demipulse™
  generator, two new Perennia™ leads and the Generator Field
  Upgrader
• Significantly enhanced the R&D effort to bring new medical
  devices to patients with epilepsy
• Found the best development collaborators and executed
  several agreements
• Made significant progress in resolving legal issues
• Improved company reputation with all stakeholders

           Well positioned to continue the development phase

                                                               8
Agenda
• Angus Wilfong, M.D., Associate Professor, Pediatrics and Neurology,
  Baylor College of Medicine; Medical Director, Comprehensive Epilepsy
  Program, Texas Children’s Hospital

• Steven Karceski, M.D., Associate Clinical Professor of Neurology, College
  of Physicians and Surgeons, Columbia University

• Break

• Milton Morris, Ph.D., Vice President, Research & Development

• James Reinstein, Vice President, Sales & Marketing, General Manager,
  International

• Q&A


                                                                              9
Angus Wilfong, M.D.
Associate Professor, Pediatrics and Neurology, Baylor
College of Medicine
Medical Director, Comprehensive Epilepsy Program,
Texas Children’s Hospital




                                                        MDSym10-11-1000-US
My Personal Experience with VNS

• First implants 1998 (post-FDA approval)

• Milwaukee 1998 – 2001: 100 patients

• Houston 2001 – present: >300 patients

• VNS is an important part of my clinical practice in providing
  a comprehensive approach to patient care in order to
  maximize quality of life for patients living with epilepsy

• Relationship with Cyberonics

                                                                  11
                     What is epilepsy?




MDSym10-11-1000-US
Seizures Versus Epilepsy
 • A seizure is the clinical accompaniment of an abnormal
   electrical discharge in the brain

 • A single seizure does not indicate a diagnosis of epilepsy1

 • Epilepsy is a neurologic disorder characterized by
   recurrent, unprovoked seizures that may result from many
   different causes, including congenital malformations, brain
   tumors, traumatic brain injury, intracranial hemorrhages or
   strokes1,2

                             1
                                 Kandel ER, et al. Principles of Neural Science. 4th ed. 1991:910-935.
                                                      ²
                                                       Semah F, et al. Neurology. 1998;51:1256-1262.     13
Types of Seizures in Epilepsy

Localization-related (focal/partial)                             Generalized
   – Affects limited area(s) of the brain, only part                  – Affects both hemispheres
      of cerebral hemisphere1,2                                           of the brain1,2
   – Most common seizure type (62%)3                                  – More common in children1
   – Can be complex or simple (ie, with or                            – Loss of awareness/consciousness occurs1
      without loss of awareness)1                                     – Includes tonic-clonic seizures
   – Can evolve into a generalized seizure                                (convulsions, grand mal), absence
      (secondarily generalized)1 that is most often a                     seizures, myoclonic seizures1 and atonic
      convulsion                                                          seizures




                                                     1
                                                      Kandel ER, et al. Principles of Neural Science. 4th ed. 1991:910-935.
                               2
                                   International League Against Epilepsy (ILAE) Classification. http://www.ilae-epilepsy.org/
                                                                           3
                                                                             Semah F, et al. Neurology. 1998;51:1256-1262.

                                                                                                                          14
What is refractory epilepsy?
•   Seizures that persist despite adequate trials of at least 3 AEDs1

•   Overall remission* rates with subsequent treatment trials are dramatically
    decreased2

     – 46% with the first treatment

     – 10.1% with the second treatment

     – 2.3% with the third treatment

     – Only 0.8% of patients responded optimally to further trials

•   Diagnosis of refractory/intractable epilepsy becomes apparent within a few years of
    starting treatment2


                                         1. Brodie MJ and Kwan P. Neurology. 2002;58(suppl 5):S2-S8. 2.
                                               Mohanraj R and Brodie MJ. Eur J Neurol. 2006;13:277-282.

                                                                                                          15
                                          *Remission is defined as seizure freedom until last follow-up
Consequences of refractory epilepsy
  •   Seizure-related injuries1,3
  •   Increased seizure severity3
  •   Adverse effects with long-term AED use1,3,5
  •   Depression1,4
  •   Anxiety3
  •   Cognitive and memory impairment (from seizures and AEDs)1,3,5
  •   Impaired ability to obtain education, to work, to drive, to establish families, and
      to develop and maintain social relations3,8
  •   Poor health status1,3
  •   Increased mortality and morbidity1,6,7
  •   Increased healthcare utilization (eg, ER visits, hospitalizations)9


                                     1. Schmidt D. Epilepsy Res 2002;50:21-32. 2. Wheless JW. Epilepsy Behav
                                     2006;8:756-64. 3. Fisher RS, et al. Epilepsy Res 2000;41:39-51. 4. Gilliam
                                         F. Neurology 2002;58:S9-S20. 5. Meador KJ. Neurology 2002;58(suppl
                                         5):S21-S26. 6. Lhatoo SD, et al. Postgrad Med J 1999;75:706-709. 7.
                                    Annegers JF, et al. Epilepsia 1998;39:206-212. 8. Van Ness PC. Arch Neurol
                                                                                                                   16
                                             2002;59:732-735. 9. Griffiths RI, et al. Epilepsia 1999;40:351-358.
Treatment costs for patients on 3 AEDs are almost twice
those of patients receiving only 1 AED1




                 Other Costs includes Medications, Laboratory and Other combined.


                                      1. Griffiths RL, et al. Payer costs of patients diagnosed with epilepsy.   17
                                                                                  Epilepsia 1999;40(3):351-8.
Management of refractory epilepsy should balance
several considerations
  • Maximize long-term efficacy

  • Maximize patient control

  • Minimize nonadherence

  • Minimize drug-drug interactions

  • Mitigate healthcare utilization and cost

  • Minimize side effects

  • Maximize continuation rates

                                                   18
Available treatment options for
      refractory epilepsy




                                  MDSym10-11-1000-US
Epilepsy Treatments
  Treatment    Age           Indication                    Efficacy                      Side Effects

  AEDs         Children      Specific AEDs for             ~65%                      Vary by AED, typically
                                                           sz freedom 1
               Adults        specific seizure types                                  CNS- and endocrine-
                                                           Refractory <5% sz freedom related

  Ketogenic    Primarily     All seizure types;            ~86% with >90%                Lipid disorders, kidney
  Diet         children      adjunctive                    seizure reduction             stones, abnormal
                                                           after 6-12 years2             growth, ketoacidosis

  Epilepsy     Children      Refractory or                 ~70% in                       Cognitive effects,
  Surgery      Adults        localization-related          select patients               surgery-related risks
                             epilepsy; adjunctive          sz freedom3

  VNS Therapy 12 and older   Refractory epilepsy,           ~Up to 43% of                Voice alteration,
                             localization-related          patients showed               hoarseness, cough,
                             seizures, ≥12 years of        ≥50% frequency                pharyngitis, dyspnea,
                             age; adjunctive               reduction over 3              infection
                                                           years4


                                                          1
                                                           Mohanraj R and Brodie MJ. Eur J Neurol. 2006;13:277-282.
                                                  2
                                                      Groesbeck DK, Dev Med Child Neurol. 2006 Dec;48(12):978-81. .
                                                                         3
                                                                           Van Ness PC. Arch Neurol. 2002;59:732-735.
                                                       4 Morris GL III and Mueller WM. Neurology. 1999;53:1731-1735.



                                                                                                                   20
Suggested treatment sequence




                  Wheless JW. Neurostimulation Therapy for Epilepsy. In: Wheless JW,
                       Willmore LJ, Brumback RA, eds. Advanced Therapy in Epilepsy.    21
                                           Hamilton, Ontario: BC Decker, Inc. 2008.
Treatment outcomes
  • AEDs
  • Surgery
  • VNS Therapy




                     MDSym10-11-1000-US
8% to 51% responder rates with new add-on AEDs
                                                 Minimum and Maximum responder rates reported in adult patients
                                        100%             (add-on therapy for partial refractory epilepsy)
% patients with 50% seizure reduction




                                        80%



                                        60%                  50%                                                      51%
                                                                         43%
                                                                                                                                     40%
                                                 36%                                                  34%
                                        40%
                                                                                      26%

                                        20%                  27%                                                      27%
                                                                         25%                                                         22%
                                                 20%                                                  20%
                                                                                           8%
                                         0%
                                               TGB (1,2)   OXC (1,2)   ZNS (1,2)   GBP (1,2)       LTG (1,2)       TPM (1,2)        LEV (1)

                       Note: Patient follow up in these studies varied, but the maximum follow up period studied was 3 months.




                                                                               1. French JA, et al. Neurology 2004;62:1261-73. 2. Nadkarni S, et al.
                                                                                                                Neurology 2005;64(Suppl 3):S2-S11      23
1% to 13% seizure free rates with new AEDs
                      Seizure free (SF) rates in adult patients1
                        (averaged over the studies; 6-month SF rate)
                       (add-on therapy for partial refractory epilepsy)
              100%

              90%

              80%

              70%
 % patients




              60%

              50%

              40%

              30%

              20%                                                                         13%
                                                                 8%
              10%                       4%
                     1%
               0%
                     GBP                LTG                       TPM                      LEV




                                     1. Zaccara G, et al. Acta Neurol Scand 2006;114:157-68.     24
Less than 40% of the patients on new AEDs remain on
therapy > 2 years

          Drugs                   Continuation rates after ≥ 2 years1

      Gabapentin                                2y: 6.6% to < 10%
                                                       3y: 29%
      Lamotrigine                                      5y: 40%
                                                       8y: 38%
                                                  3y: 37% to 58%
     Levetiracetam
                                                       5y: 32%

      Topiramate                                 3y: 30% to 38.4%


      •    The main reasons for discontinuation of a new AED2
            – Lack of efficacy: 29.5%
            – Sedating side-effects: 20.5%

                                1. Zaccara G, et al. Acta Neurol Scand 2006;114:157-68. 2. Chung S, et al.
                                                                             Seizure 2007;16(4):296-304. 25
AED nonadherence is associated with worsened patient
outcomes and increased strain on hospitals
      Nonadherence Significantly Increases Healthcare Utilization1
                         100%                                                                        76%
                                                           p < 0.05
                          90%
                                                                                                    76%
                          80%
                          70%
            % Increase




                          60%
                                                                      39%
                          50%
                                                                      39%
                          40%
                          30%
                                       16%
                          20%           16%
                          10%
                            0%
                                    Emergency                 Hospitalizations                  Inpatient days
                                 department visits
                                            33,658 patient records were collected and studied
                                                     from January 1997 to June 2006

  Nonadherence is associated with
  •   3-fold increased risk of death (HR, 3.32; 95% CI, 3.11-3.54; P<0.001)1
  •   Annual increase of over $2000 per patient in emergency department and inpatient costs (P=0.001)2

                                                          1. Faught E, et al. Epilepsia 2009;50(3):501-509. 2. Davis KL, et al.
                                                                                                  Epilepsia. 2008;49-446-454.     26
Seizure relapses may occur after resective surgery1
•   Of 175 patients that were seizure free one year after lobectomy,
    37% relapsed during the 10-year follow-up1

                             371 surgery patients1
                               10 years follow-up


                           51% seizure-free the 1st year
                                    n = 189



                        175 patient included in the analysis

                                                                             Total of 110 (29.6%) of the
                                                                             371 surgery patients were
                                                                             seizure free after 10 years

                         37% relapsed within 10 years
                                   n = 65


                                     1. Yoon HH, et al. Neurology 2003;61(4):445-50.                       27
Reductions in seizure frequency with VNS Therapy improve
over time and are sustained long-term
        Patients with at least a 50% reduction in seizure frequency
                              (n=440, last observation carried forward)

                       100%

                       90%
                       80%

                       70%
                       60%
          % Patients




                       50%                                    43%            43%
                                               37%
                       40%

                       30%     23%
                       20%

                       10%
                        0%
                              3 months       1 year         2 years         3 years
                                          ≥50% reduction in seizures



                                       Morris GL, et al. Neurology 1999;53:1731-5.    28
Long-term reimplant rates show high tolerability
of VNS Therapy1
                                      VNS Therapy
                             71% Initial Reimplantation Rate1
                                   VNS Therapy (US) Model 100
                                  reimplantation rates (n=6,092)


                                                                                  71%
     % Reimplantation Rate




                                                                                               29
                                        1. Data on file. Cyberonics, Inc. Houston, TX. 2009.
What impedes VNS adoption?
• Market Research - 2008 AES survey
• The most important reason why physicians would not
  consider VNS
   – 32% Not very effective/no more effective than AEDs
   – 24% Most VNS Therapy candidates are good epilepsy
           surgery candidates
   – 20% Patients refuse because it requires surgery
   – 9% Doesn’t make the patient seizure free
   – 5% Expensive / poor reimbursement
   – 3% Prevents future MRIs


                                                          30
VNS Helps to Maximize Quality of Life
• Seizures are bad and medications don’t always work
   – Disability associated with epilepsy is due to seizures and drugs

• The sooner refractory patients are identified, the better
   – After 3 AED failures, nonpharmacologic treatment must be
     considered

   – If not a suitable craniotomy candidate, then I implant with VNS

   – In my experience, VNS works better in younger patients and
     those with shorter duration of epilepsy


                                                                    31
Steven Karceski, M.D.
Associate Clinical Professor of Neurology
College of Physicians and Surgeons
Columbia University




                                            MDSym10-11-1000-US
My Personal Experience with VNS

 • First implant in 1997 (after FDA approval)
 • More than 200 patients implanted
 • Vagus Nerve Stimulation is unique treatment for refractory
   epilepsy
    – Patients have direct control over seizures (magnet)
    – Side effect profile
 • Relationship with Cyberonics




                                                                33
What is Vagus Nerve Stimulation?
 What is VNS Therapy?

• The VNS Therapy System
  consists of an implanted
  pacemaker-like generator
  and nerve stimulation
  electrodes, which deliver
  intermittent stimulation to
  the patient’s left vagus nerve
  that sends signals to the brain




                                    35
VNS Therapy programming system components

Handheld Computer
   • Platform for Programming Software



Programming Wand
   • Accessory to programming handheld
     computer
   • Communication tool between
     Programming Software and Pulse
     Generator




                                            36
Vagus Nerve Stimulation

                                 Action Potentials
                                 continue to brain




                                                             Negative
                                                             Electrode



                            Action Potentials
                            are blocked
                                                             Positive
                                                             Electrode

                                                               Some Action
                 Action Potential =   and
                                                               Potentials are
                                                     Vagus     not blocked
                                                     Nerve

                                                                         37
VNS Therapy – U.S. indication for use
• The VNS Therapy System is indicated for use as


   – An adjunctive therapy in reducing the frequency of seizures


   – In adults and adolescents over 12 years of age


   – With partial onset seizures that are refractory to antiepileptic
     medications




                                                                    38
VNS Therapy – CE Mark indication for use
• The VNS Therapy System is indicated for use as
   – An adjunctive therapy in reducing the frequency of
     seizures
   – In patients whose epileptic disorder is dominated by
      • partial seizures (with or without secondary
        generalization)
      • or generalized seizures that are refractory to
        antiepileptic medications
      • without limitation of age


                                                            39
Effectiveness of VNS
Refractory Epilepsy and VNS
• 25-year-old with epilepsy since she was 12
   – Frequent seizures that cause loss of consciousness and injuries
     (she burned her arm on a radiator)

   – Medications have either not helped, OR

   – Medications have caused side effects

   – Brain surgery is not an option

• Other treatment options must be considered!



                                                                   41
Epilepsy Treatments
  Treatment    Age           Indication                    Efficacy                      Side Effects

  AEDs         Children      Specific AEDs for             ~65%                      Vary by AED, typically
                                                           sz freedom 1
               Adults        specific seizure types                                  CNS- and endocrine-
                                                           Refractory <5% sz freedom related

  Ketogenic    Primarily     All seizure types;            ~86% with >90%                Lipid disorders, kidney
  Diet         children      adjunctive                    seizure reduction             stones, abnormal
                                                           after 6-12 years2             growth, ketoacidosis

  Epilepsy     Children      Refractory or                 ~70% in                       Cognitive effects,
  Surgery      Adults        localization-related          select patients               surgery-related risks
                             epilepsy; adjunctive          sz freedom3

  VNS Therapy 12 and older   Refractory epilepsy,           ~Up to 43% of                Voice alteration,
                             localization-related          patients showed               hoarseness, cough,
                             seizures, ≥12 years of        ≥50% frequency                pharyngitis, dyspnea,
                             age; adjunctive               reduction over 3              infection
                                                           years4


                                                          1
                                                           Mohanraj R and Brodie MJ. Eur J Neurol. 2006;13:277-282.
                                                  2
                                                      Groesbeck DK, Dev Med Child Neurol. 2006 Dec;48(12):978-81. .
                                                                         3
                                                                           Van Ness PC. Arch Neurol. 2002;59:732-735.
                                                       4 Morris GL III and Mueller WM. Neurology. 1999;53:1731-1735.



                                                                                                                   42
Reductions in seizure frequency with VNS Therapy improve
over time and are sustained long-term
        Patients with at least a 50% reduction in seizure frequency
                              (n=440, last observation carried forward)

                       100%

                       90%
                       80%

                       70%
                       60%
          % Patients




                       50%                                    43%            43%
                                               37%
                       40%

                       30%     23%
                       20%

                       10%
                        0%
                              3 months       1 year         2 years         3 years
                                          ≥50% reduction in seizures


                                       Morris GL, et al. Neurology 1999;53:1731-5.    43
Average VNS Therapy responder rate is ~50%
             % patients responding to VNS Therapy in settings
     (adult patients with at least a 50% reduction in seizure frequency)
                     100%
                     90%
                     80%
                     70%
      % Responders




                                                              57%             59%
                     60%       50%            51%
                     50%
                     40%
                     30%
                     20%
                     10%
                      0%
                              Vonck         Renfroe          Labar          DeHerdt
                             (n=118)        (n=120)         (n=269)         (n=138)
                            MeanF/U 33 mo   MeanF/U 3 mo   MeanF/U 12 mo   MeanF/U 44 mo

                                                 1. De Herdt V, et al. Eur J Paediatr Neurol 2007;11:261-9. 2. Labar DR.
                                                      Seizure 2004;13:392-8. 3. Renfroe JB and Wheless JW. Neurology
                                                       2002;59(suppl 4):S26-S30. 4. Vonck K, et al. J Clin Neurophysiol 44
                                                                                                        2004;21:283-9.
1% to 13% seizure free rates with new AEDs
                      Seizure free (SF) rates in adult patients1
                        (averaged over the studies; 6-month SF rate)
                       (add-on therapy for partial refractory epilepsy)
              100%

              90%

              80%

              70%
 % patients




              60%

              50%

              40%

              30%

              20%                                                                         13%
                                                                 8%
              10%                       4%
                     1%
               0%
                     GBP                LTG                       TPM                      LEV




                                     1. Zaccara G, et al. Acta Neurol Scand 2006;114:157-68.     45
VNS Therapy seizure-free rates

                                                       % Seizure-free patients
             50%                           (Study-defined; adult patients with partial seizures)


             40%
% patients




             30%



             20%
                                15%
                                            12%
             10%                                        9%        8%          7%         6%
                     6%                                                                             5%         5%         5%          4%
                                                                                                                                                  2%
             0%
                       All      Renfroe     Helmers   De Herdt     Amar       Labar      Labar      Amar       Labar      Helmer     Renfroe       Amar
                   (330/5925)   (18/120)     (6/51)   (12/138)   (40/481)    (61/896)   (17/269)   (8/156)    (27/511)   (16/354)   (12/2785)    (3/164)
                                 (EAR;       (12 m)   (= 12 m)   (Non-CS;   (Group 1;    (12 m)      (CS;    (Group 2;    (Late;     (Control;    (15 m)
                                  3 m)                             24 m)      12 m)                 24 m)      12 m)      12 m)        3 m)



                                                      1. Renfroe JB and Wheless JW. Neurology 2002;59(suppl 4):S26-S30. 2. Helmers SL, et al.
                                                      Neurologist 2003;9:160-4. 3. De Herdt V, et al. Eur J Paediatr Neurol 2007;11:261-9.
                                                      4. Amar AP, et al. Neurosurgery 2004;55:1086-93. 5. Labar DR, et al. Neurology 2002;59:
                                                      S38-43. 6. Labar DR. Seizure 2004;13:392-8. 7. Amar AP, et al. Stereotact Funct
                                                      Neurosurg 1999;73:104-8.
                                                                                                                                                       46
Many patients are able to stop or decrease the severity/
duration of their seizures using the VNS Therapy magnet
         Effect of Magnet-Activated Stimulation in 9,482 Seizures
      100%

      90%

      80%                     24%
      70%
                             62%
      60%
                         Seizure terminated
      50%                  2,211 seizures

                                                                           38%
      40%

      30%

      20%                Seizure diminution
                           3,638 seizures

      10%

       0%
             Positive impact on seizure activity 5,849      Seizure not effected 3,633 seizures
                             seizures



                                                                                                      47
                                              1. Morris GL, et al. Epilepsy Behav 2003;(4):740-745.
VNS Therapy patient magnets

           • Can be worn on the patient’s wrist or belt
           • Uses
              – Temporarily turn off the device to alleviate
                possible side-effects
                   • Hold over device to immediately stop stimulation
                   • Keep in place for 65 seconds or greater
                   • After at least 65 seconds and when removed,
                     stimulation resumes after one complete OFF-time
                     period
               – Provide on-demand magnet mode
                 stimulation before or during a seizure
                   • Apply or pass the magnet over the generator for
                     >1 sec and <65 sec to initiate magnet mode
                     stimulation

                                                                        48
On-demand magnet stimulation a unique
benefit of VNS Therapy
• Offers more control for patients
  and their families1,2
• Initiates on demand stimulation
   – May abort or decrease severity
     of seizures1-3
   – May improve postictal period2
• Stops stimulation
   – Acutely manage side effects3


                           1. Boon P, et al. J Clin Neurophys. 2001;18:402-407. 2. Fromes GW, et
                               al. Epilepsia. 2000;41(suppl 7):117. 3. Schachter SC and Saper CB.
                                                                                                     49
                                                                       Epilepsia. 1998;39:677-686.
Quality of life improvements are seen over time
and are independent of seizure control
                                                                Quality of life outcomes
                                      100%           (VNS Therapy patient outcome registry; n = 2,229)
   % patients better or much better




                                      80%
                                                                                                                                     3 months

                                                   62%                                                                               12 months
                                      60%    57%               55%
                                                         50%
                                                                                44%                              45%
                                                                                                 41%       40%
                                      40%                                 38%
                                                                                           35%                                                     34%
                                                                                                                                  30%
                                                                                                                            24%              26%

                                      20%



                                       0%
                                             Alertness    Postictal        Seizure        Verbal skills       Mood          Academic          Memory
                                                                           Clusters                                       Achievements

                                                • <7% of patients reported worse or much worse outcome by any single measure



                                                                     1. Data on file. Cyberonics, Inc, Houston, Texas; April 25, 2003. 2. Ergene E, et al. Epilepsy
                                                                     Behav 2001;2:284-7. 3. McLachlan RS, et al. Eur Neurol 2003:50:16-9. 4. Harden CL, et al.        50
                                                                                 Epilepsy Behav 2000;1:93-9. 5. Hoppe C, et al. Epilepsy Behav 2001;2:335-42.
VNS Therapy has a positive impact on healthcare utilization




         Independent Kaiser study followed 138 patients over 4 years


                                                                                          51
                                    Bernstein A, et al. Epilepsy Behav 2007;10:134-137.
AED nonadherence is associated with worsened patient
outcomes and increased strain on hospitals
    Nonadherence Significantly Increases Healthcare Utilization1
                       100%                                                                        76%
                                                         p < 0.05
                        90%
                                                                                                  76%
                        80%
                        70%
          % Increase




                        60%
                                                                    39%
                        50%
                                                                    39%
                        40%
                        30%
                                     16%
                        20%           16%
                        10%
                          0%
                                  Emergency                 Hospitalizations                  Inpatient days
                               department visits
                                          33,658 patient records were collected and studied
                                                   from January 1997 to June 2006

Nonadherence is associated with
•   3-fold increased risk of death (HR, 3.32; 95% CI, 3.11-3.54; P<0.001)1
•   Annual increase of over $2000 per patient in emergency department and inpatient costs (P=0.001)2

                                                        1. Faught E, et al. Epilepsia 2009;50(3):501-509. 2. Davis KL, et al.
                                                                                                Epilepsia. 2008;49-446-454.     52
VNS Therapy side effects are related to stimulation
and decrease over time1
                                 Most common VNS Therapy side effects
              100%
                                             (n = 440)


              80%                                                                             1 year
                                                                                              2 year
                                                                                              3 year
 % patients




              60%



              40%
                     29%

                           19%
              20%
                                                                12%
                                         7% 6%                                               8%
                                 2%              2%                   4%                          3% 3%
                                                                            0%
               0%
                     Hoarseness            Cough                Paraesthesia           Shortness of breath


                                            1. Morris GL, et al. Neurology 1999;53:1731-5.                   53
Safety of VNS
VNS Therapy has a unique safety profile
• More than 50,000 patients worldwide have been implanted with VNS
   Therapy

• No known interactions with medications

• No reported systemic neurotoxic effects, rash, renal impairment, or bone
   marrow suppression

• No increase in sudden, unexpected death in epilepsy (SUDEP)1

• Gestational outcomes
    – Animal study has shown no evidence of impaired fertility or harm to the
      fetus due to VNS Therapy2,3

    – Pregnancies have gone to term with VNS4,5
                                      1. Annegers JF, et al. Epilepsia. 1998;39:206-212. 2. Physician’s
                                    Manual. Houston, TX: Cyberonics, Inc.. 3. Danielsson et al. 4. Ben-
                                Menachem E, et al. Epilepsia. 1998;39(6):180. 5. Husain MM, et al. Ann    55
                                                                            Gen Psychiatry. 2005;4:16.
VNS Therapy has a unique side effect profile

• Most side effects associated with VNS Therapy
   – Occur only during stimulation1,2

   – Generally diminish over time2

   – May be diminished or eliminated by the adjustment of
     parameter settings2

   – May be controlled by use of the magnet3

   – Similar across age groups4,5

                               1. Ben-Menachem E, et al. Neurology. 1999;52(6):1265-1267. 2. Ben-
                              Menachem E. J Clin Neurophysiol. 2001Sep;18(5):415-418. 3. Schacter
                                 SC. Neurology. 2002;59(suppl 4):S15-S20. 4. Alexopoulos AV, et al.
                                                                        Seizure. 2006;15(7):491-503.
                                                 5. Sirven JI, et al. Neurology. 2000;54:1179-1182. 56
Treatment of Epilepsy:
Other Potential Devices
DBS data from pivotal study Stimulation of the Anterior
Nucleus of the Thalamus in Epilepsy (SANTE)

• Prospective, randomized, double-blind pivotal study to evaluate use of DBS
  for epilepsy (n=110)
• Statistically significant median seizure reduction compared with a no-stim
  control group at end of blinded phase (38% vs 14.5%)
• 40% (n=87) experienced a 50% or greater reduction from baseline at 13
  months
• 60% (n=86) experienced a 50% or greater reduction from baseline at long-
  term follow up (12-49 months)
• 9% (n=86) had no reported seizures from long-term follow up (12-49
  months)


                                 1. Medtronic News Release – December 8, 2008
                                                                                58
DBS data from pivotal study Stimulation of the Anterior
Nucleus of the Thalamus in Epilepsy (SANTE)

• 10.9% infection rate
• 1.3% rate of asymptomatic ICH
•   Significantly higher incidence of (self-reported) depression,
    memory impairment, and anxiety
    – Most events resolved spontaneously or with changes in
      medication or stimulation parameters
    – Objective neuropsychological assessment did not confirm any
      statistical differences between active and control groups
• 5 deaths

                        1. Medtronic News Release – December 8, 2008
                                                                       59
Procedure Comparison: VNS vs. DBS

      Procedure                         Risks                    Cost                      Programming           Reimbursement

VNS   Typically implanted in             • Surgical infection    $21-25k for procedure     Straight forward      Widely accepted,
      outpatient setting                   rate: 1.7%            (including device cost)   programming           established
      (~ 1 hr)                           • Hoarseness                                                            reimbursement
                                         • Cough
                                         • Shortness of breath
                                         • Paresthesia



DBS   Typically implanted in 2           • Surgical infection    $50-70k for procedure     Programming is more   Unknown
      stages:                              rate: 10.9%           (including device cost)   complex and time      reimbursement for
        • Bilateral Leads – inpatient    • Intracranial                                    consuming             epilepsy
          setting (~ 4 hrs)                hemorrhage: 1.3%
        • IPG – outpatient setting         per lead implant
          (~ 2 hrs)                      • Higher incidence of
                                           spontaneously self-
                                           reported
                                           depression,
                                           memory, anxiety




                                                                                                                                     60
Research & Development Overview:
What’s NeXT?
Milton M. Morris, Ph.D.
Vice President, Research & Development
Milton M. Morris, Ph.D.
Vice President, Research & Development
    Educational Background                Professional Background
    Northwestern University               Boston Scientific (Guidant Corp.)
    Evanston, IL                          (1996-2007)
    • B.S. EE (’92)                       St. Paul, MN
    • Executive MBA (’04)                 • Research & Technology
                                              – Algorithm Development
    University of Michigan                    – Heart Failure decompensation &
                                                hospitalization prediction
    Ann Arbor, MI
    • MSEE (’94), Ph.D. EE (’97)          • Sales & Marketing
                                              – Franchise Owner: Pacemakers &
    • Research Assistant                        Implantable Defibrillators
        – Medical Computing Laboratory
    • Signal Processing
                                          InnerPulse, Inc. (2007 – 2009)
        – Intracardiac Electrogram        Research Triangle Park, NC
          Signals
        – Algorithm Development           • Product Development + Operations
        – Cardiac Rhythm Classification
        – Arrhythmia Detection            Cyberonics, Inc. (2009 to present)
                                          Houston, TX
                                          • Research & Development
                                                                                 62
R&D Overview: What’s NeXT?
Summary

• Cyberonics has offered a steady cadence of product line
  extensions that have returned value through maintenance
  and increase in average selling prices.

• Cyberonics is currently focused on delivering game
  changing technologies that offer improved VNS efficacy,
  more treatment options, greater ease of use, and better
  management of patients with epilepsy.

• Cyberonics’ Medical Device Pipeline will drive continued
  leadership in the treatment and management of patients with
  epilepsy through IP-protected points of differentiation.


                                                                63
R&D Overview: What’s NeXT?
Agenda



• Historic Look at Cyberonics R&D

• Current Focus

• Product & Technology Road Map




                                    64
R&D Overview: What’s NeXT?
Agenda



• Historic Look at Cyberonics R&D
  (Line Extensions)

• Current Focus

• Product & Technology Road Map




                                    65
    R&D Overview: What’s NeXT?
    Historic Look at Cyberonics R&D




                Model 100        Model 101          Model 102           Model 103


•    History of continuous improvement in pulse generator design. (4 generators since 1998)
      – Demipulse is latest PG outfitted with significant decrease in footprint (43% smaller
        than the Pulse)




                                                                                               66
    R&D Overview: What’s NeXT?
    Historic Look at Cyberonics R&D




               Model 100              Model 101      Model 102/102R   Model 103/104
          Thickness: 0.52” (13.2   0.41” (10.3 mm)   0.27” (6.9 mm)   0.27” (6.9 mm)
               mm) 31 cc                 26 cc           14/16 cc         8/10 cc


•    History of continuous improvement in pulse generator design. (4 generators since 1998)
      – Demipulse is latest PG outfitted with significant decrease in footprint (43% smaller
        than the Pulse)
      – Demipulse power management enables longevity similar to the Pulse with smaller
        battery



                                                                                               67
R&D Overview: What’s NeXT?
Historic Look at Cyberonics R&D




     • Proficient Lead development (4 leads since in 1998)
         – PerenniaFLEX M304: Newly released for full commercial distribution
         – Similar handling characteristics as M302
         – Designed for improved coil flex fatigue performance
         – Controlled fillet at electrode bifurcation for durability


                                                                                68
R&D Overview: What’s NeXT?
Historic Look at Cyberonics R&D




     • Intuitive and light programming and communication toolset
         – 5 programmers since 1998
         – Currently running version 7 of software application


                                                                   69
R&D Overview: What’s NeXT?
Historic Look at Cyberonics R&D




• Line extensions support healthy revenue through increases in or
  maintenance of average selling price.



                                                                    70
R&D Overview: What’s NeXT?
Agenda




 • Historic Look at Cyberonics R&D

 • Current Focus
   (Game Changers)

 • Product & Technology Road Map




                                     71
R&D Overview: What’s NeXT?
Current Focus: “…address the most pressing unmet needs…”

 Enhance the Effectiveness of VNS Therapy by…
 • Improving stimulation algorithms
     – new Stimulation Schemes

 • Predicting the VNS Responder


 • Closing the loop on therapy
     – seizure Detection and Prediction
     – automatic Magnet Swipe

           Sample Manual Magnet Swipe



                       From Wang et al. J of the Neurological Sciences 2009.   72
R&D Overview: What’s NeXT?
Current Focus: “…address the most pressing unmet needs…”
                                                                       Key Takeaway: NXT family provides
                                                                       therapeutic options for our customers
 Drive New Product Innovations…                                        & IP protected points of
                                                                       differentiation with competition
 • Pulse Generators: The NeXT Family of Devices

              NXT HC                            NXT SR                                 NXT NP
   HC: Higher Capacity
                                      SR: Seizure Response                   NP: New Parameters
   Description:
   •   Demipulse capabilities
                                      Description: HC plus…                  Description: SR plus…
   •                                  • Electronic Diary
       60% greater longevity                                                 • new stimulation parameters
                                      • Auto magnet swipe (closed
   •   Pulse Footprint (14cc)                                                • Improves IP position
   •   Clinical Workhorse (SR & NP)     loop Sz Dtxn)
                                      • Improves IP position

   *Commercialization:
                                      *Commercialization:
   CY Q1 2011                                                                *Commercialization:
                                      CY Q2 2012
                                                                             CY Q4 2012


                                        *Note: Estimated time frame for commercial release in calendar years.
                                                                                                                73
                                         Note: Products shown above are Not Approved for Human Use.
R&D Overview: What’s NeXT?
Current Focus: “…address the most pressing unmet needs…”

 Drive New Product Innovations…
 • Pulse Generators: The Phoenix Platform
                                           Sz Response (SR) II:
                                           • Head Electrogram (EGRM)
             Phoenix                       • Detection algorithm
                                             leveraging head EGRM.                        NeuroVista Technologies:
                                                                                          • Head Electrodes
   Family of Products                      Power Management:                              • Detection Algorithm
                                           • Rechargeable + Non-
   Description:                              rechargeable units.
   •   Improved SR and NP
   •   New Power Management
   •   Reduced size vs NXT Family          New Parameters (NP) II:                    Apron for                 Phoenix
   •   Wireless Communication              • Improvements to and/or                   Recharger                Stimulator
                                             new stimulation
   *Commercialization:                       parameters.
                                                                                     Source Generic
                                                                                     Power
                                                                                                       Photo
   CY 2013
                                                                                              Of stim params
                                                                                           NeuroVista Collaboration:
                                                                                           • Rechargeable System
                                                                                           • Wireless Communication

                                    *Note: Estimated time frame for 1st family member from Phoenix Platform in calendar years.
                                                                                                                      74
                                     Note: Products shown above are Not Approved for Human Use.
R&D Overview: What’s NeXT?
Current Focus: “…address the most pressing unmet needs…”

 Drive New Product Innovations…
 • Pulse Generators: The Griffin Platform


          Griffin


   Family of Products


   *Commercialization:
   CY 2014



                                                    In collaboration with Pedro Irazoqui, Asst Professor, Purdue
                                                    University Weldon School of Biomedical Engineering, West
                                                    Lafayette, IN.

                         *Note: Estimated time frame for 1st family member from Griffin Platform in calendar years.
                          Note: Products shown above are Not Approved for Human Use.                                  75
R&D Overview: What’s NeXT?
Current Focus: “…address the most pressing unmet needs…”
                                                        Key Takeaway: New Lead technologies
Drive New Product Innovations…                          improve therapy adoption and provide IP
                                                        protected points of differentiation with
• Leads                                                 competition


   – MRI Safe
       • Expanded Labeling
           – from: 1.5 Tesla, Head, GE Equip. Only
           – to: 3.0 Tesla, Head, Beyond GE Only
       • MRI Safe Lead
           – 3.0 Tesla, Head + Neck, Beyond GE Only

   – Nerve Over Wrap
       • Improves lead extraction
       • Improves current distribution
                                                                       Unwrapped           Wrapped

                              Note: Products shown above are Not Approved for Human Use.
                                                                                                     76
R&D Overview: What’s NeXT?
Current Focus: “…address the most pressing unmet needs…”
                                                               Key Takeaway: New Programmer +
Drive New Product Innovations…                                 Wand enhance ease-of-use to increase
                                                               therapy adoption
• Programmer + Wand: Drive Ease-of-Use…
   – Programmer: New User Interface
      • Parameter Programming Assist
      • Diagnostics: Electronic Seizure Diary
      • Hand held printing capability
      • Battery life gauge improvements

   – Wand:
      • Smaller form factor vs the 201
      • Faster communication speed (shorter interrogation times)
      • Less sensitive to orientation above the implanted device
      • No Wand (Wireless Programmer & Generator)


                                                                                                77
                                Note: Products shown above are Not Approved for Human Use.
R&D Overview: What’s NeXT?
Current Focus: “…address the most pressing unmet needs…”

 Drive New Product Innovations…
                                                                                 eDiary

 • Electronic Seizure Diary             Key Takeaway:
                                        CYBX technology
           eDiary                       will drive a broader
                                        level of service to
                                        physicians and
                                        patients
 Electronic Seizure Diary
 Description:
 • Conveniently and accurately
   measures seizure burden.
 • Extensible to future backend
                                                                                Long-term Offering
   telemedicine                                                               • Epilepsy Patient Management
                                                                                  – eDiary
                                                                                  – Seizure Alert
 Commercialization:                                                           • Remote IPG Management
 CY 2011                                                                          – Remote VNS patient follow-up

                                           CardioBelt                             – Remote IPG diagnostic retrieval
                                                                                  – Remote IPG system check
                                                                                  – Remote IPG programming


                                  Note: Products shown above are Not Approved for Human Use.
                                                                                                                      78
R&D Overview: What’s NeXT?
Agenda



• Historic Look at Cyberonics R&D

• Current Focus

• Product & Technology Road Map




                                    79
R&D Overview: What’s NeXT?
                                                                             Earliest               Latest



Product Cadence                                                                         Product A
                                                                                 Note: Each box defines an estimated time
                                                                                 frame for commercial release.




                                      NXT HC                          NXT NP                                  GRIFFIN
 Released
 Pulse                                                      NXT SR                                  PHOENIX
 Demipulse



 Released       3T MRI Labeling
                                                      MRI Safe
 302
 PerenniaDURA
 PerenniaFLEX            Nerve Wrap


                                               Next Gen Programmer


                                               Next Generation Wand


                                      *Electronic Diary I    *Electronic Diary II




                                               * Electronic Diary I concept without telemedicine backend.
                                                 Electronic Diary II concept contains telemedicine backend.

                                           Note: Products shown above are Not Approved for Human Use.
                                                                                                                            80
R&D Overview: What’s NeXT?
Moving the Playing Field to VNS 2014
Key Takeaway 1: Key collaborations enable
acceleration of product development pipeline and                                                                VNS 2014
introduction of novel closed-loop VNS therapy.                                                                  (VNS of the future)




                                                                                                                     Griffin
                                                                                                                     Key Technology: Leadless Electrode
                                                                                                                     IP: Pending
                                                                                                                     Collaboration: Purdue

                          MRI Conditional System                                        Phoenix
                                                                                        Key Technology: EEG Sensing + Other
                          Key Technology: MRI Conditional Tech
                                                                                        IP: Head Based Sz Detection (Exp. 2025)
                          IP: TBD
                                                                                        Collaboration: MIT & Purdue
                          Collaboration: TBD
                                                                 NXT NP
                                                                 Key Technology: MicroBurst Stim + Other
                                                                 IP: MicroBurst Stim (Exp. 2028)
                                                                 Collaboration: Barrow Neurological Institute
                                             NXT SR
          VNS today                          Key Technology: Closed Loop Sz Response
                                             IP: Cardiac Based Sz Detection (Exp. 2019)
                             NXT HC          Collaboration: Flint Hills Scientific
                             Key Technology: EKG Sensing




                                                     Note: Products shown above are Not Approved for Human Use.
                                                                                                                                                81
R&D Overview: What’s NeXT?
Moving the Playing Field to VNS 2014
Key Takeaway 1: Key collaborations enable
acceleration of product development pipeline and                                                                VNS 2014
introduction of novel closed-loop VNS therapy.                                                                  (VNS of the future)


Key Takeaway 2: Each product contributes to a
growing portfolio of Intellectual Property.
                                                                                                                     Griffin
                                                                                                                     Key Technology: Leadless Electrode
                                                                                                                     IP: Pending
                                                                                                                     Collaboration: Purdue

                          MRI Conditional System                                        Phoenix
                                                                                        Key Technology: EEG Sensing + Other
                          Key Technology: MRI Conditional Tech
                                                                                        IP: Head Based Sz Detection (Exp. 2025)
                          IP: TBD
                                                                                        Collaboration: MIT & Purdue
                          Collaboration: TBD
                                                                 NXT NP
                                                                 Key Technology: MicroBurst Stim + Other
                                                                 IP: MicroBurst Stim (Exp. 2028)
                                                                 Collaboration: Barrow Neurological Institute
                                             NXT SR
          VNS today                          Key Technology: Closed Loop Sz Response
                                             IP: Cardiac Based Sz Detection (Exp. 2019)
                             NXT HC          Collaboration: Flint Hills Scientific
                             Key Technology: EKG Sensing




                                                     Note: Products shown above are Not Approved for Human Use.
                                                                                                                                                82
R&D Overview: What’s NeXT?
Moving the Playing Field to CYBX 2014: Epilepsy Management Company
Key Takeaway 1: Key collaborations enable
acceleration of product development pipeline and                                                                CYBX 2014
introduction of novel closed-loop VNS therapy.                                                                  (CYBX of the future)


Key Takeaway 2: Each product contributes to a
growing portfolio of Intellectual Property.                              Telemedicine                                Griffin
Key Takeaway 3: New product concepts help to                                                                         Key Technology: Leadless Electrode
establish CYBX as an Epilepsy Management                         Sz Alert                                            IP: Pending
Company.                                                                                                             Collaboration: Purdue

                          MRI Conditional System                                        Phoenix
                                                                                        Key Technology: EEG Sensing + Other
                          Key Technology: MRI Conditional Tech
                                                                                        IP: Head Based Sz Detection (Exp. 2025)
                          IP: TBD
                                                                                        Collaboration: MIT & Purdue
                          Collaboration: TBD
                                                                 NXT NP
                                                                 Key Technology: MicroBurst Stim + Other
            Electronic Diary                                     IP: MicroBurst Stim (Exp. 2028)
                                                                 Collaboration: Barrow Neurological Institute
                                             NXT SR
        CYBX today                           Key Technology: Closed Loop Sz Response
                                             IP: Cardiac Based Sz Detection (Exp. 2019)
                             NXT HC          Collaboration: Flint Hills Scientific
                             Key Technology: EKG Sensing




                                                     Note: Products shown above are Not Approved for Human Use.
                                                                                                                                                83
R&D Overview: What’s NeXT?
Summary

• Cyberonics has offered a steady cadence of product line
  extensions that have returned value through maintenance
  and increase in average selling prices.

• Cyberonics is currently focused on delivering game changing
  technologies that offer improved VNS efficacy, more
  treatment options, greater ease of use, and better
  management of patients with epilepsy.

• Cyberonics’ Medical Device Pipeline will drive continued
  leadership in the treatment and management of patients with
  epilepsy through IP-protected points of differentiation.


                                                                84
James Reinstein
Vice President, Sales & Marketing
General Manager, International




                                    MDSym10-11-1000-US
James Reinstein
Vice President, Sales and Marketing; General Manager, International

Educational Background           Professional Background
University of Georgia            Procter and Gamble Corp (1986-1990)
Athens, GA                       Cincinnati, OH
• BBA (1986)                     • Territory Sales Manager
                                 • Key Account Manager
INSEAD
Fontainebleau, France
                                 Boston Scientific Corp (1990-2007)
                                 Natick, MA
• General Management Program     •   Territory Sales Manager
  (1999)                         •   Product Marketing Manager
                                 •   International Marketing: Europe
                                 •   General Manager: Mexico
                                 •   Vice-President and GM: Asia

                                 Cyberonics, Inc. (2007- current)
                                 Houston, TX
                                 • Vice President




                                                                       86
Sales Objectives

            Double Revenues
               in 5 Years

              $320+ million
                FY2015


               CAGR 15%
                              87
Topics
• Global Commercial Team
• End of Service Analysis and Projections
• New Patient Growth
   – Geographical expansion
   – Customer focus
   – New products
• Long-Term Financial Forecast
• Growth Drivers




                                            88
Topics
• Global Commercial Team
• End of Service Analysis and Projections
• New Patient Growth
   – Geographical expansion
   – Customer focus
   – New products
• Long-Term Financial Forecast
• Growth Drivers




                                            89
Global Commercial Team Transformed
FY2008 – FY2010


 Streamlining       Re-alignment     Accountability      Local Expertise




                                                    Four
            Improved           Customer
                                                International
           Productivity       Engagement
                                                   Regions




                                                                      90
Globally Structured For Growth

            Asia/Pacific:
            1 GM
            1 TPS                                                 Japan:
                                                            VNS
            7 Distributors                                        1 Distributor

                                                   VNS                              Canada:
                                                                                    1 Distributor


                                                                             VNS
 EU Re-organized

                       VNS




                             VNS
                                                                         Headquarters:
                                                                         1 International Marketing Manager

                                                                                             LATAM:
                                          EMMEA:                                             1 GM
                                          1 GM                                               1 TPS
                                          2 TPS                                      VNS     12 Distributors
                                          19 Distributors




                                   Significant progress in global expansion is underway
                                                                                                               91
Sales Team Alignment


                              FY07   FY08   FY09   FY10

  European Sales Head Count    23     22     21     22
         Turnover %            5%     4%    28%    14%
LATAM, AP & EMMEA Sales HC     0      1      4      7
        Turnover %             0%     0%     0%     0%
    USA Sales Head Count      147     99     72     87
         Turnover%            18%    52%    15%     7%




                                                          92
Sales Team Productivity: USA
                        USA - Headcount / Revenue
                  160                                     $140
                  140                                     $120
                  120
                                                          $100
      Headcount




                                                                 Revenue
                  100
                                                          $80
                   80
                                                          $60
                   60
                                                          $40
                   40
                                                                   52 Territories
                   20                                     $20

                    0                                     $0
                        FY07   FY08      FY09     FY10E

                               Fiscal Years
                                      Headcount
                                      Revenue


                                                                                    93
Growth Drivers – Key Components

• End of Service (EOS)
• New Patient Growth
   – Geographic expansion
   – Customer focus
   – New products
• Price
   – Annual increases
   – New technology
• Double revenue in 5 years


                                  94
Growth Drivers – Key Components

• End of Service (EOS)
• New Patient Growth
   – Geographic expansion
   – Customer focus
   – New products
• Price
   – Annual increases
   – New technology
• Double revenue in 5 years


                                  95
End of Service (EOS)

End of Service Analysis and Projections
• Model 100 re-implants
• Model 101 re-implants
• Model 102 re-implants
• Multiple re-implants
• Projections for FY2012
Methodology



                                          96
End of service – Model Data Recap

• Model 100: sold through October 2000
  – Typical battery life – three to eight years
  – Total implant cards received – approximately 6,500

• Model 101: sold from February 2000 to October 2004
  – Typical battery life – five to eleven years
  – Total implant cards received – approximately 9,600

• Model 102: sold from July 2002 to date
  – Typical battery life – three to ten years
  – Total implant cards received – approximately 24,000

    (US data only)



                        Note that Cyberonics does not receive all implant cards
                                                                                                                                  97
                        Investors should exercise caution in using the data above in estimating replacement generator potential
US Epilepsy – Initial Implant & Re-implant Activity for Model 100

               Number of Initial Implants                                                               Cumulative Re-implants
               Adjusted Number of Initial Implants                                                      Initial Re-implants
   7000
                                                                                                                                                                       >100%
   6000




   5000


                                                                                                                                                                                71%
   4000




   3000




   2000




   1000




       0
          LD
          Q4
                   2       4       2       4       2       4       2        4        2        4       2       4        2       4        2        4       2       4        2
        O        _Q2
                  Q       Q4
                         _Q       Q2
                                 _Q      _Q4
                                          Q       Q2
                                                 _Q       Q4
                                                         _Q      _QQ2     _QQ4     _QQ2     _QQ4    _QQ2    _QQ4     _QQ2    _QQ4     _QQ2     _QQ4    _QQ2    _QQ4     _QQ2
     00_ 2000 0012001 0012001 0022002 0022002 0032003 0032003 004 2004 004 2004 005 2005 005 2005006 2006006 2006 007 2007007 2007 008 2008 008 2008009 2009009 2009 010 2010
   20        2       2       2       2       2       2       2        2        2        2        2       2       2        2       2        2        2       2       2

                                                     Model 100 – sold through October 2000
                                                           Typical battery life – three to eight years
                                                           Total implant cards received – approximately 6,500                                                                   98
                                                                         Investors should exercise caution in projecting future re-implant sales based on historical trends
US Epilepsy – Initial Implant & Re-implant Activity for Model 101
                       Initial Re-implants                                                    Cumulative Re-implants
   100%


    90%


    80%


    70%


    60%

                                                                                                                                                         50%
    50%


    40%                                                                                                                                                  40%
                                                                                                        30%
    30%


    20%
                                                                                                                             25%

    10%


    0%
          LD




           2
           2


           4


           2


           4


           2


           4


           2


           4


           2


           4


           2


           4


           2


           4


           2


           4


           2


           4
       Q4     Q2     Q4     Q2     Q4     Q2     Q4     Q2       Q4     Q2     Q4      Q2     Q4      Q2     Q4      Q2     Q4      Q2     Q4      Q2
         _Q


         _Q


         _Q


         _Q


         _Q


         _Q


         _Q


         _Q


         _Q


         _Q


         _Q


         _Q
         _Q




         _Q


         _Q


         _Q


         _Q


         _Q


         _Q
        _O




       01


       02


       02


       03


       03


       04


       04


       05


       05


       06


       06


       07


       07


       08


       08


       09


       09


       10
       01




      2000   2001   2001   2002   2002   2003   2003   2004     2004   2005   2005    2006   2006    2007   2007    2008   2008    2009   2009    2010
      00




    20


    20


    20


    20


    20


    20


    20


    20


    20


    20


    20


    20


    20


    20


    20
    20


    20


    20


    20
   20




                                         Model 101 – sold from February 2000 to October 2004
                                               Typical battery life – five to eleven years
                                               Total implant cards received – approximately 9,600
                                                                                                                                                                   99
                                                              Investors should exercise caution in projecting future re-implant sales based on historical trends
Model 101 Re-Implant trends

                                                  Cumulative re-implant % by year of initial implant

                              50%


                              45%


                              40%


                              35%
 Cumulative Re-Implant Rate




                              30%


                              25%


                              20%


                              15%


                              10%


                              5%


                              0%
                                    2000   2001        2002    2003         2004       2005          2006           2007           2008           2009

                                                              % Reimplant     % re-implant    % re-implant

                                                                                         Model 101: Sold from February 2000 to October 2004
                                                                                                 Typical battery life – five to eleven years             100
                                                                                                 Total implant cards received – approximately 9,600
Multiple Generator Re-implants
                         Number of patients implanted with at least 3 generators

            900

            800
                                                                                     150

            700
                                                                         103

            600
                                                                                     250
                                                        49
 Patients




                                                                         209
            500
                                      16               131
            400
                                      88
            300     6
                    61
                                                                                     450
            200                                        386               415
                                      309
            100    215


             0
                  FY 2006           FY 2007           FY 2008          FY 2009     FY 2010E

                                       Model 100    Model 101     Model 102




                                                                                              101
Summary of End of Service Model – USA
                                                 All Models Implant Trends
                 1st Reimplant            2nd Reimplants            3rd and more reimplants         Total Reimplants



           5,000

           4,000
Implants




           3,000

           2,000

           1,000

             -
                      2001       2002   2003   2004   2005   2006     2007     2008    2009   2010E 2011E 2012E
                                                             Fiscal Year



                                        EOS represents a consistent source of long-term growth

                                                                                                                 102
Growth Drivers – Key Components

• End of Service (EOS)
• New Patient Growth
   – Geographic expansion
   – Customer focus
   – New products
• Price
   – Annual increases
   – New technology
• Double revenue in 5 years


                                  103
Japan Epilepsy Market Potential
               Japan Population: 126.8M1
          PREVALENCE                    INCIDENCE
      1.0M in Japan suffer       50,000 patients diagnosed
         from epilepsy2             With epilepsy4 year




                                                          9,500
           189,000
                                                   Annual Potential
                                                    VNS Therapy
          Potential                                 Candidates 4, 5
        Candidates for
        VNS Therapy 3, 5



                               ZERO
                              Patients
                             Implanted


                                         1   Source: Census.gov                         3   Source: WHO
                                         2   Source: Epilepsyfoundation.org (% pop w/   4   Source: NIH       104
                                              epilepsy: 0.8%) Incidence Rate = 0.04%    5   Based on FDA labeling
   Japan Potential

                  $35

                  $30

                  $25                                         $33m
     Revenue $M
$ millions




                  $20                                $27m
                  $15
                                            $18m
                  $10

                   $5              $12m
                        $5.6m
                   $0
                        Year 1     Year 2   Year 3   Year 4   Year 5


                                 Assumes:
                                    – 7,600 implants
                                    – ASP $11k going to $13k           105
BRIC Potential

              $14
              $12
              $10                                       $12m
 $ millions




               $8                              $10m
               $6                      $8m
               $4             $6m
               $2    $4m
               $0
                    FY2011   FY2012   FY2013   FY2014   FY2015



                        Assumes:
                           – 3,900 implants
                           – ASP $9k going to $11k               106
Global New Patients


            12000


            10000


             8000
 Patients




             6000


             4000


             2000


                0
                    FY 2010   FY 2011        FY 2012   FY 2013      FY 2014   FY 2015

                                        US     International     Japan



                                                                                        107
Global Growth FY2010- FY2015
             $350


             $300
                                                             $0.0

             $250
                                  Double in 5
                                           $0.0
                                                   $0.0
$ millions




             $200
                        $0.0
                                  years
             $150
                                   $0.0                             $320+


             $100
                    $159 - $162

              $50



               0
                       2010        US     Europe   Japan   EMMEA    2015
                                                           LATAM
                                                             AP

                                                                            108
Growth Drivers – Key Components

• End of Service (EOS)
• New Patient Growth
   – Geographic expansion
   – Customer focus
   – New products
• Price
   – Annual increases
   – New technology
• Double revenue in 5 years


                                  109
Customer Focus
• Develop framework for consistently capturing VOC
• Leadership Summits with Key Opinion Leaders
   – 8 events, 88 Neurologists and Neurosurgeons (Adult & Pediatric)
   – 91% MDs report that more than 80% patients have been re-implanted
   – More than half of respondents claim that SR, and the benefits it brings, will
     make them open to prescribing VNS to more patients
   – Physicians very positive when asked about overall direction of the company
• Ongoing customer engagement




                                                                                     110
 New Products

             $350


             $300


             $250             Double in 5
                              years
$ millions




             $200                                               $0.0



             $150                                        $0.0          $320+
                              $0.0
                                      $0.0
                                                $0.0

             $100
                    $159 –
                     $162
             $50


              0
                    2010     Lead    Pulse   Demipulse   HC     SR     2015



                                                                               111
Growth Drivers – Key Components

• End of Service (EOS)
• New Patient Growth
   – Geographic expansion
   – Customer focus
   – New products
• Price
   – Annual increases
   – New technology
• Double revenue in 5 years


                                  112
Story Of Success: Demipulse in USA

           Pulse Generator (Model 102)


                        Demipulse Duo (Model 104)

                                         Demipulse (Model 103)




                                                          113
Story Of Success: Demipulse in USA
 Pulse                                Demipulse
  Calendar    List     Price Change   Calendar    List      Price vs. Pulse
   Year      Price         (YoY)       Year      Price     (Current Year)


    2007     $11,999       0%           2007     $15,999        +33%


    2008     $13,126      +9.4%         2008     $17,248        +33%


    2009     $13,651       +4%          2009     $17,938        +31%


    2010     $14,197       +4%          2010     $18,655        +31%




   Getting value from our technology

                                                                         114
Long Term Forecast – Global Price Mix

• +3% annual ASP increase FY10-FY15
• FY10-FY15 Price Premiums
   – Perennia lead vs 302 lead = 19% premium
   – Demipulse vs Pulse = 29% premium
   – HC vs Pulse = premium planned
   – HC vs Demipulse = equal or higher price planned
   – SR vs HC = premium planned



                                                       115
Historical Global Epilepsy Revenues ($millions)

             $180
             $160
             $140
$ millions




             $120
             $100
              $80
              $60
              $40
              $20
               $0
                    FY2005   FY2006        FY2007    FY2008   FY2009   FY2010


                                      US   International




                                                                                116
FY2010- FY2015 Forecast

              $350                                                   $320+m
              $300
              $250
 $ millions




              $200
              $150
              $100
               $50
                $0
                     FY2010   FY2011    FY2012     FY2013   FY2014   FY2015

                                   US    International



                                                                              117
Growth Summary
• EOS
    – Consistent and strong EOS growth creates an annual annuity
    – Provides growth bridge to new products
• New patient growth
    – Planned initial U.S. new patient growth 2-3%
    – Geographic Expansion
          • Japan: 10% penetration forecasted to be reached in 10+ years
          • Expanding in key new markets: China, Brazil, Russia and India
    – New products will drive new patient growth
• Price
    – Annual +3% ASP increase
    – Premium pricing for new technology
•
                                                                            118
Summary
• Double revenue in 5 years
• Sustainable and repeatable growth
  – EOS
  – New patients in existing and new markets
  – New products
• Upside
  – Faster new patient growth
  – Other new products
     • E-Diary, Nerve Wrap, Phoenix



                                               119
                     Q&A




MDSym10-11-1000-US

				
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